Multiple Choice

Identify the choice that best completes the statement or answers the question.

1. Define economics.

a) a financial and social system

b) the study of a country's overall economic issues

c) the integration between consumers, families, and businesses

d) the study of the choices that different entities make in allocating resources

2. Macroeconomics focuses on

a) the major issues facing the national economy, but has little or no relevance to individuals.

b) smaller economic units such as individual consumers, families, and individual businesses operating within the economy.

c) the major issues facing the national economy that may seem abstract, but directly affect an individual's day-to-day life.

d) the role of government, while microeconomics focuses on the private sector.

3. After the collapse of the dot com bubble and the 9/11 terrorist attacks, the stock market depreciated and unemployment increased leading many to fear that the country was on the brink of a full-blown recession. In order to stimulate the economy the Federal Reserve Bank

a) lowered taxes in an effort to increase spending.

b) lowered interest rates from 6.5% to 1.25% in an effort to increase spending.

c) increased taxes in an effort to increase spending.

d) increased interest rates from 1.25% to 6.5% in an effort to increase spending.

4.Early in your first term as President of the United States you faced an economy in the beginnings of a recession. Which of the following would represent an example of a fiscal policy you might suggest to deal with this situation?

a) Ask Congress to cut total spending on social programs to avoid running a budget deficit.

b) Ask Congress to cut taxes in order to give consumers and businesses more income to spend and invest.

c) Order the Fed to raise the required reserve ratio.

d) Urge Congress to give the U.S. Treasury the authority to print more money.

5. The Great Recession resulted in nearly 8 million jobs lost in a 3-year period. Many of these lost jobs will

a) come back as the economy continues to change.

b) come back because the old skills are needed.

c) never come back.

d) never come back because people don't want to do them.

6.Which choice refers to fiscal policy?

a) The Fed's policy was announced today that the Federal Funds Rate will increase by 1.25%, thereby helping to curb inflation.

b) The President signed an executive order that mandated a tax rate increase of 10% on durable goods.

c) President Franklin Delano Roosevelt signed an executive order that required private citizens to surrender all gold and silver currency to the federal government in 1935, or face fines or imprisonment.

d) For fiscal year 2008, the federal government's expenditures exceeded it revenues by nearly five hundred billion dollars.

7. In setting monetary policy, the Federal Reserve oversees the operation of _____ Federal Reserve Banks, which carry out Fed policies and perform banking services for commercial banks in their districts. These Federal Reserve Banks are owned by ______.

a) 12; the member commercial banks in their district

b) 15; the federal government

c) 12; the state government where they are located

d) 15: the Treasury Department

8. The Federal Reserve is the _____ of the United States.

a) financial market

b) central bank

c) state business regulator

d) foreign exchange controller

9. Recently, I.B. Rheele read in the newspaper that the Federal Reserve chairman had expressed concern about inflation and indicated the Federal Reserve would be taking some action in order to prevent inflation from spiraling out of control. The Federal Reserve could use all of the following tools EXCEPT

a) selling government bonds in the open market.

b) increasing the discount rate.

c) increasing banks reserve requirements.

d) increasing government spending on roads and bridges.

10. The primary way the Fed controls the supply of money is by

a) establishing the amount of currency the U.S. Treasury is allowed to print each month.

b) changing the reserve requirement.

c) buying and selling government securities on the open market.

d) allowing banks to borrow more money from the U.S. Treasury.

11. If the Fed wants to increase the money supply it should:

a) raise the reserve requirement.

b) raise the discount rate.

c) cut taxes.

d) buy government securities.

12. A federal agency called the ______ was established to protect customer deposits in banks and thrift institutions for up to $250,000 per customer, per bank.

a) Federal Deposit Insurance Corporation (FDIC)

b) Federal Reserve System

c) Federal Open Market Committee

d) Federal Deposit Requirement Program

13. Michael has inherited $500,000 from the sale of a family business. His banker is advising him to find multiple banks to deposit his money. Why?

a) The Open Market Operations of the Federal Reserve would invest his money in other securities and might lose it without needing to justify the expenditure.

b) The Federal Reserve does not keep that much money in any one bank due to federal regulations prohibiting the buying and selling of securities.

c) The Federal Deposit Insurance Corporation will only insure up to $250,000 in each account per customer, per bank. He would need more than one bank to ensure his money is federally protected in the event of an economic collapse of the banking system.

d) He needs to diversify his holdings in more than one bank to protect himself against fraudulent lending practices of banks.

14. Credit is tight. Even borrowers with good credit have to shop around for loans, and it seems like banks are reluctant to loan their money. Of the following choices, what could be the reason?

a) The Fed has raised the discount rate, thereby making it impossible for consumers to get a decent interest rate on their loans.

b) The Federal Open Market Committee has started selling securities.

c) The Federal Open Market Committee has started selling securities, and the Fed has just issued new reserve requirements, changing the policy from 10% to 12%.

d) The Fed has made some changes to the check-clearing processes of the member banks, charging higher fees for the service.

15. Which of the following is not a fundamental right of capitalism?

a) right to own property

b) right to compete

c) right to keep profits and not pay taxes

d) right to run a business

16. A competitor decided to drop its prices by 15% across the board, in an effort to increase market share. In response, its primary competitor dropped its prices by 20%. In which of the Four Degrees of Competition would this be undesirable, even disastrous?

a) pure competition

b) natural monopoly

c) Monopoly

d) Oligopoly

17. Firms in oligopolistic markets tend to

a) keep prices as low as possible.

b) avoid price competition whenever possible.

c) be very concerned about the possibility of new firms entering their market.

d) have very small market shares.

18. Which of the following directly impacts the range of products and prices in the free market system?

a) government pricing policies

b) new product development plans

c) the constant interaction between buyers and sellers

d) corporate marketing programs

19. A supply curve shows that as prices rise the

a) quantity of products produced declines.

b) equilibrium point shifts upward.

c) number of products demanded stays the same.

d) quantity of products produced rises.

20. If low-cost solar power were to become a viable energy source in households across the U.S., what would be the economic impact on energy prices?

a) Energy costs across the country would increase with adoption of the new energy source.

b) Housing prices would decrease as new homes are built with this new energy source.

c) Prices would increase as this is a new energy source.

d) Prices would decrease as competition increases in energy production.

21. If the cost of an iced-tea is more expensive during the summer months, consumers will

a) not buy at all.

b) buy no more or less due to the increase in price.

c) buy more due to the increase in price.

d) buy less due to the increase in price.

22. Anne notices that her clothing store isn't selling many of the jeans priced at $120. She wants to quickly increase sales of these jeans before next season's fashions come in. What would be her best approach?

a) Keep the prices the same but move the jeans to another section of the store.

b) Drop the price of the jeans so that demand will increase.

c) Raise the price of the jeans to make them seem more exclusive.

d) Put even higher priced jeans next to the $120 jeans.

23. In 2006, the price of a gallon of gasoline rose from $2.00 per gallon to over $4.00 per gallon. If the demand curve for gasoline is like most demand curves, the increase in the price of gasoline

a) resulted in more demand for gasoline than at the lower price.

b) resulted in less demand for gasoline than at the lower price.

c) resulted in an increase in the number of miles driven by consumers.

d) had no effect on the amount of gasoline consumers would buy.

24. Which best describes the equilibrium price in the relationship between supply and demand?

a) Hank said, "We can charge whatever the market will bear."

b) Andre told us, "Demand is highest when there are more widgets to sell; if you don't have widgets, how can people buy them?"

c) Shauna told her employees, "The company is only sending one fuel truck per week now, so the price is going up. It's like they're rationing us."

d) Dave said, "Man, there are so many laptops out there they don't know what to do with them! They're a dime a dozen now."

25. Communist economies have faced a number of issues that have interfered with their effectiveness. The issues include all of the following EXCEPT

a) crippling shortages and surpluses.

b) abundant natural resources.

c) corruption.

d) suspension of individual rights and choices.

26. Socialist economies have experienced a recent slow down in growth because of

a) high taxes and the elimination of public benefits.

b) low taxes and lavish social programs.

c) high taxes and lavish social programs.

d) low taxes and the elimination of public benefits..

27. What cause is attributable to the failure of socialism and communism wherever they have been attempted throughout the world?

a) Lack of opportunity. Clearly communism could have worked if it had been better executed, especially with today's technology.

b) The corruption of powerful central governments has been their downfall. If a stronger mandate for police power were present in these countries, they would have survived, strong and intact.

c) The social burden of entitlement programs, at some point, outstrips the ability of the people to produce. If these programs were better funded through higher taxes, they would have been sustainable.

d) Capitalism, with its agility and potential for a country's economic growth, has been largely responsible for the failure of both communism and socialism.

28. Natasha is very unhappy with conditions in her country. She has very little economic or political freedom. Virtually all productive enterprises are owned by the government, and they seem to be run very inefficiently. The result is frequent shortages and surpluses of goods and services. These conditions suggest that Natasha's country relies on a _____ economic system.

a) Communist

b) Socialist

c) Capitalist

d) Monopolistic

29. The government of Puritania has begun a program to restructure the economy, with a goal of moving toward a more market-oriented system. Which of the following is LEAST likely to occur as the result of this restructuring?

a) A rise in social unrest as citizens try to adjust to the economic reforms.

b) Privatization of formerly government-owned enterprises.

c) Cuts in social programs such as free healthcare and unemployment benefits.

d) Slower rates of economic growth and lower standards of living for the majority of citizens.

30. What best describes the trend in mixed economies?

a) Most socialized economies at the leading edge of economic sensibility are being restructured toward free market principles in the interest of sustainability.

b) Most economies are abandoning capitalist principles and economic rights in favor of a more socialized approach.

c) The trend in first world societies is toward social justice issues like free healthcare and green technology, both proven sustainable approaches to economics.

d) The trend is toward the Keynesian approach to centrally planned, demand-side models of the economy, because these have historically proven themselves to work best.

31. Pampered Pooch is a dog groomer in the area looking to increase productivity for the business. Currently, in an eight-hour day, Pampered Pooch can wash and groom 12 large dogs. To calculate productivity, the management of Pampered Pooch would

a) divide the number of dogs groomed per day (12) by the amount of labor per day (8 hours).

b) divide the total weight of the dogs by 12, then multiply the results by the number of hours of labor per day (8 hours).

c) divide 8 hours by 12 dogs per day.

d) divide 12 dogs by a 7-day work week and multiply the result by 8.

32. Why is a low level of inflation desirable in an economy, and why is deflation not desirable?

a) It reflects a healthy economy; people have money and are willing to spend it.

b) Because a low level of inflation keeps a currency from edging too near deflation.

c) Inflation helps to justify investment and keeps a currency strong.

d) Deflation means that the currency is increasing in value, and is actually desirable